Local IT retailer Connection Group has reported record earnings for the year to May, in spite of what it describes as "tough trading conditions" both in the retail durable sector and the enterprise IT solutions sector.
The group says in its annual report that its operating profit before interest rose 36% and headline earnings per share by 30%. The group attributed the 36% gain in operating profit to higher earnings in Incredible Connection and an excellent turnaround in Enterprise Connection, which completed a full financial year of profitability.
Headline earnings per share rose to 53.7c (41.2c) with tangible net asset value up 13% to 115.1c per share.
Group revenue of R804.7 million was down 6%. CEO Toni Fourie says this was mainly as a result of the deflationary effect of the strengthening rand and high interest rates, which depressed consumer spending on expensive durables.
Fourie says the stronger rand caused prices of imported hardware to fall by 30% across the board, which depressed turnover, as the group passed on the benefit to customers.
"Our products became more affordable and while unit volumes did grow by between 20% and 35% in key categories, this was not enough to compensate entirely for the drop in unit prices," he says.
In notching up 22% earnings growth, Incredible Connection experienced four distinct trading patterns during the year. First quarter revenue grew, while a decline was felt in the second half, as higher interest rates dampened demand. A recovery was felt in the third quarter and in the fourth quarter the company returned to growth.
Because of the unstable environment, Incredible Connection slowed expansion and concentrated on increasing productivity in existing businesses.
Enterprise Connection generated a profit of R3.8 million, a turnaround of R6.8 million. The group sold 50% of Enterprise Connection to Canal Square Investments, a new black empowerment company, effective 30 April 2003.
"While corporate IT spending has slowed appreciably during the last year, government remains the largest spender on IT services," says Fourie. "This market opportunity, coupled with Enterprise Connection`s black empowerment credentials, manageable cost base and good customer portfolio, will allow it to prosper in the future.
"In addition, much of the IT investment from Y2K is due to be upgraded and with some exciting new products released by both Microsoft and HP, Enterprise Connection is well positioned."
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